The degree of exposure for the African continent in relation to Brexit developments varies, but is significant given the continent’s close historic and cultural ties.
Alisa Strobel, senior economist: sub-Saharan Africa, economics and country risk at IHS Markit, analyses what the effect of Brexit could be on Africa.
African countries take the largest share in global commonwealth membership. The aftermath of the UK’s 24 June “leave” vote on the European Union caused African currencies to tumble, with the South African rand losing 4,7% of its value against the US dollar within days.
IHS Markit’s current exposure matrix for the region to Brexit developments shows that the region is expected to see increased uncertainty in the near term coupled with headwinds linked to a weaker pound.
However, there are also potential opportunities in relation to trade and future FDI flows for the region depending on the success of future negotiations and exactly how the UK exits the European Union.
Key findings include
* African incomes that are dependent on Diaspora support will be affected by the depreciation of sterling. The fall of the pound has also reduced the value of aid support.
* The UK is African nation’s second biggest export partner in the EU after the Netherlands. The short-term implications of the Brexit developments are related to a weaker sterling that is going to have an impact on UK imports, such as cut flowers from Kenya.
* Brexit could also provide opportunities for African economies in the long term if the UK is going to draw lessons from the current key issues faced by these economies in dealing with EU’s Economic Partnership Agreements, while re-establishing new trade partnerships agendas.
* IHS Markit expects that UK FDI which is focused on commodity extraction and the energy sector should endure and that the commodity price outlook, among other factors, is likely to play a more important role in investment planning rather than being directly dictated by Brexit developments.